Forex for a trader
Forex contract lot sizes

Forex contract lot sizesWhat is a Lot in Forex? In the past, spot forex was only traded in specific amounts called lots, or basically the number of currency units you will buy or sell. The standard size for a lot is 100,000 units of currency, and now, there are also a mini , micro , and nano lot sizes that are 10,000, 1,000, and 100 units respectively. To take advantage of this minute change in value, you need to trade large amounts of a particular currency in order to see any significant profit or loss. Let’s assume we will be using a 100,000 unit (standard) lot size. We will now recalculate some examples to see how it affects the pip value. USDJPY at an exchange rate of 119.80: (.01 119.80) x 100,000 = $8.34 per pip USDCHF at an exchange rate of 1.4555: (.0001 1.4555) x 100,000 = $6.87 per pip. In cases where the U. S. dollar is not quoted first, the formula is slightly different. EURUSD at an exchange rate of 1.1930: (.0001 1.1930) X 100,000 = 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip GBPUSD at an exchange rate of 1.8040: (.0001 1.8040) x 100,000 = 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip. As the market moves, so will the pip value depending on what currency you are currently trading. What the heck is leverage? You are probably wondering how a small investor like yourself can trade such large amounts of money. Think of your broker as a bank who basically fronts you $100,000 to buy currencies. All the bank asks from you is that you give it $1,000 as a good faith deposit, which it will hold for you but not necessarily keep. Sounds too good to be true? This is how forex trading using leverage works.

The amount of leverage you use will depend on your broker and what you feel comfortable with. Typically the broker will require a trade deposit, also known as “account margin” or “initial margin.” Once you have deposited your money you will then be able to trade. The broker will also specify how much they require per position (lot) traded. No problem as your broker would set aside $1,000 as down payment, or the “margin,” and let you “borrow” the rest. Of course, any losses or gains will be deducted or added to the remaining cash balance in your account. The minimum security (margin) for each lot will vary from broker to broker. In the example above, the broker required a one percent margin. This means that for every $100,000 traded, the broker wants $1,000 as a deposit on the position. How the heck do I calculate profit and loss?

So now that you know how to calculate pip value and leverage, let’s look at how you calculate your profit or loss. Let’s buy U. S. dollars and sell Swiss francs. The rate you are quoted is 1.4525 1.4530. Because you are buying U. S. dollars you will be working on the “ASK” price of 1.4530, the rate at which traders are prepared to sell. So you buy 1 standard lot (100,000 units) at 1.4530. A few hours later, the price moves to 1.4550 and you decide to close your trade. The new quote for USDCHF is 1.4550 1.4555. Since you initially bought to open the trade, to close the trade, you now must sell in order to close the trade so you must take the “BID” price of 1.4550. The price which traders are prepared to buy at. The difference between 1.4530 and 1.4550 is .0020 or 20 pips. Using our formula from before, we now have (.00011.4550) x 100,000 = $6.87 per pip x 20 pips = $137.40. Remember, when you enter or exit a trade, you are subject to the spread in the bidask quote. When you buy a currency, you will use the offer or ASK price.

When you sell, you will use the BID price . Next up, we’ll give you a roundup of the freshest forex lingos you’ve learned! Forex contract specification. Extends for MT4 and MT5 servers. Currency pairs available for Classic accounts. - For the currency pair USDCNH time of trading session is daily, Mon-Fri, 03:00 am - 11:00 pm EET. Margin requirements are 10 times as high as they would be based on current credit leverage of a trading account (i. e., if 1:1000 is set for a trading account, leverage will be 1:100). Currency pairs available for Market Pro accounts. - For the currency pair USDCNH time of trading session is daily, Mon-Fri, 03:00 am - 11:00 pm EET. Margin requirements are 10 times as high as they would be based on current credit leverage of a trading account (i. e., if 1:1000 is set for a trading account, leverage will be 1:100). Currency pairs available for ECN accounts. - For the currency pair USDCNH time of trading session is daily, Mon-Fri, 03:00 am - 11:00 pm EET. Margin requirements are 10 times as high as they would be based on current credit leverage of a trading account (i. e., if 1:1000 is set for a trading account, leverage will be 1:100). 1. According to the "Regulations on the trading operations" each Friday, 5 hours before closure of the market - 7:00 pm EET as per the trading server time as well as before the holidays margin requirements for all instruments, for accounts with the balance less than 500 USD450 EUR, is settled based on the highest leverage 1:100 (for CFD and USDCNH it is pro rate lower according to the specifications published on the company website). 2. To settle with contractors on the company, on the last day of the month on ECN accounts accrued "Swaps" and "Trading commissions" are settled for "Balance of account". Trading Hours - time intervals when trading on financial markets is possible. Only at this time it is possible to receive quotes andthere is a possibility to open edit close positions (orders), set modify remove pending orders. Symbol - financial instrument designation in trading platforms. To see the full name of any instrument put the mouse pointer over the symbol and wait for the comment. Ask - the Ask quote at the moment of page reloadupdate. Fixed Spread - the constant value between Bid and Ask prices of any financial instrument.

The company provides fixed spreads for all instruments on Classic accounts and ensures that during the most of the time spread values are within the specification with the exception of situations described in "Regulations for trading operations". Floating Spread - the dynamic (time-varying) value between the Bid and Ask prices of any financial instrument. The company provides floating spreads for all instruments on Market Pro accounts. In the contract specification the range of a floating spread is presented in context of three values: minimum, average and maximum. The company guarantees that in most of the trading time spreads will not exceed the specified maximum value, but with the exception of situations described in "Regulations for trading operations". Limit & Stop Levels - minimal distance (in points) from the level (price) of setting order to the actual price. Works for all types or orders: Stop Loss, Take Profit, Buy Limit, Sell Limit, Buy Stop, Sell Stop, Buy Stop Limit, Sell Stop Limit. The company guarantees that in most of the trading time, spreads will not exceed the specified maximum value, but with the exception of situations described in "Regulations for trading operations". Gap - a situation when the current price is different from the previous one by more than the spread value. That can occur during the trading session after the major macroeconomic data, economic and political news, in case of force majeure, or at the market opening after the weekend and holidays. Freeze Level - range (in points) in both directions from the declared level of order execution (open price of a pending order, stop loss or take profit rates on opened position).

If the current market price is in this range, a ban on the change, removal or closure of such order can occur. In most of the time, trading is going without Freeze levels, but in situations when there may be an abrupt change of the price of any financial instrument (before and after the publication of the fundamental data, speeches by significant in the economic environment people, market interventions etc.), the company has the right to set the levels of "freezing" equal to 3 standard spreads. Commission is the payment incurred by the company for trading transactions. Commission is based on volume, current exchange rate and commission per cent provided by the specification. "Commission in %" is specified for one circle, whereas "Commission in currency" is for the full circle (openclosing order) for the volume chosen by a user. Once a transaction is opened on trading account, commission will be deducted for a full circle at once. Margin - margin funds required to open and maintain the position, indicated in deposit currency (for example USD - U. S. Dollars). Point Value - floating profit loss per one point of price change, indicated in deposit currency (for example USD - U. S. Dollars). Swap - funds deducted or credited to the Client account for the rollover to the next day (given in points). Calculation and fixing of the swap occurs in the last minute of a trading day according to the server time (from 23:59 to 00:00). Attention! Rollover from Wednesday to Thursday is calculated in triple size. From Friday to Monday and other days swaps are charged for one day. Swap amount indicated in points is calculated as "Point value in account currency" * "Swap value in points" Total swap indicated in percentage is calculated as "Contract size of 1 lot" * "Amount of lots" * "Swap value in percentage" 360, received value must be converted from contract currency into account currency. Each standard lot traded in the Forex market is a 100,000 (of the base currency) contract. In other words, when trading one lot in a standard account, a trader is essentially placing a $100,000 trade in the market.

Without leverage, many investors would not be able to afford such a transaction. Leverage of 1:100 would allow a trader to place the same one lot ($100,000) trade by posting $1,000 in margin. Many retail Forex brokers also offer the ability to trade mini lots. Mini lots essentially allow the trader to trade one tenth of a standard lot. Trading in this size is often referred to as trading a mini lot. Mini lot contracts are $10,000 (of the base currency). A trade of one mini lot would be a $10,000 trade. Trading with 1:100 leverage would mean that $100 of margin would control a $10,000 contract. Here at HotForex we have also introduced the Micro account offering 1:1000 leverage and a minimum trade size of 1 micro lot or $1,000. HotForex Latest Analysis. Loading latest analysis. Winner of 20 Industry Awards. Legal: HF Markets (SV) Ltd is incorporated in St. Vincent & the Grenadines as an International Business Company with the registration number 22747 IBC 2015. The objects of the Company are all subject matters not forbidden by International Business Companies (Amendment and Consolidation) Act, Chapter 149 of the Revised Laws of Saint Vincent and Grenadines, 2009, in particular but not exclusively all commercial, financial, lending, borrowing, trading, service activities and the participation in other enterprises as well as to provide brokerage, training and managed account services in currencies, commodities, indexes, CFDs and leveraged financial instruments. The website hotforex. com is operated by HF Markets (SV) Ltd. HF Markets Fintech Services Ltd with offices at 50 Spyrou Kyprianou, Irida 3 Tower, 10th Floor, 6057, Larnaca, Cyprus is wholly owned by HF Markets Holdings Ltd. Risk Warning: Trading leveraged products such as Forex and CFDs may not be suitable for all investors as they carry a high degree of risk to your capital. Please ensure that you fully understand the risks involved, taking into account your investments objectives and level of experience, before trading, and if necessary seek independent advice. Please read the full Risk Disclosure.

Regional Restrictions: HF Markets (SV) Ltd does not provide services to residents of the USA, Canada, Sudan, Syria, North Korea. Position Size Calculator. Position size calculator — a free Forex tool that lets you calculate the size of the position in units and lots to accurately manage your risks. It works with all major currency pairs and crosses. It requires only few input values, but allows you to tune it finely to your specific needs. All you need to do is fill the form below and press the "Calculate" button: The form does not calculate position size for oil, gold (XAUUSD), silver (XAGUSD), and other commodities as their contract specifications (namely, lot size) differ significantly between brokers. Please use a relevant MetaTrader indicator to assess position volumes for such assets (see below). Calculating the amount you can risk is very important if you carefully follow a money management strategy. I recommend doing it every time you manually open a new Forex position. It will take a minute of your time but will save you from losing money you do not want to lose. Position size calculation is also a first step to the organized Forex trading, which in its turn is a definite property of professional Forex traders. Consider using brokers with micro or lower minimum position size. Otherwise you might find it difficult to use the calculated value in actual trading orders. The importance of a thorough position size calculation process is stressed out in many influential Forex books.

Sizing a position should be done in line with setting the right stop-loss and take-profit levels. It will be difficult to lose all the account's money if you control your risk and position size every time you strike a deal in the foreign exchange market. This calculator is also available as a downloadable MetaTrader indicator . The advantages of the MetaTrader version are: Very fast calculation (once set up). Easy-to-use drag-and-drop interface with a graphical panel. Position size calculated in the same software that is used for trading. Will work for you even when you are offline. Calculate position size even if EarnForex. com is temporarily offline. Trade based on your calculated position size using a simple script.

The disadvantages of the MetaTrader version are: Requires MetaTrader (4 or 5) installation. Requires downloading and installing the indicator. It is not as intuitive as this simple lot size calculator. You might also find our pip value calculator useful. It can help you to find the value of the pip for various currency pairs and for the nonstandard account currencies. Interested in spread betting? See the bet size calculator if you need to get the right amount per point for your spread betting position. Is lot size(contract size) different for each CFD symbol on HotForex MT4? Yes, contract Sizes are different for each CFD symbol on HotForex MT4. Here are the contract size of all financial instruments offered by HotForex. 1 lot size (Contract Size) Forex Currency Pairs – 100,000 units Natural Gas – 1,000 MMBtu UKOil &USOil – 100 Barrel XAG (Silver) – 1,000 ounces XAU (Gold) – 100 ounces Coffee – 37500 Lbs Copper – 25000 Lbs Corn – 5000 Bushels Palladium – 100 Troy Oz Platinum – 50 Troy Oz Sugar #11 – 112000 Lbs Wheat – 5000 Bushels Stock CFDs – 100 shares Index CFD – 1 Index. The above contract sizes are subject to change by HotForex at anytime. (November 2016) Contract sizes are very important when calculating margin requirements to trade them. For example. If you like to trade XAUUSD(Gold), then you may need to calculate the margin requirement with the below formula: Notional Value*100 Notional Value = Number of ounces* Current Market Price. For example if an account open 1 lot (or 100 ounces) of gold the required margin will be the following: 100 * 1585 100 = $1585 The pip value for a 1 lot position is $1 per pip. The contract size directly affects the required margin for your positions. You can find out how much margin is required open a position, in the official website of HotForex.

Understanding Lot Sizes & Margin Requirements when Trading Forex. Historically, currencies were traded in specific amounts called lots. The standard size for a lot is 100,000 units. There are also mini-lots of 10,000 and micro-lots of 1,000. To take advantage of relatively small moves in the exchange rates of currency, we need to trade large amounts in order to see any significant profit (or loss). As we have already discussed in our previous article, currency movements are measured in pips and depending on our lot size a pip movement will have a different monetary value. So looking at an order window below we see that we have chosen to BUY a mini-lot of 10,000 units of the EURUSD. So what we are effectively doing is buying €10,000 worth of US Dollars at the exchange rate 1.35917. We are looking for the exchange rate to rise (i. e. the Euro to strengthen against the US Dollar) so we can close out our position for a profit. So let’s say the exchange rate moves from 1.35917 to 1.36917 – the exchange rate rose by 1c ($). This is the equivalent of 100 pips . So with a lot size 10,000, each pip movement is $1.00 profit or loss to us (10,000* 0.0001 = $1.00). As it moved upwards by 100 pips we made a profit of $100. For example’s sake, if we opened a lot size for 100,000 units we would have made a profit of $1,000. Therefore lot sizes are crucial in determining how much of a profit (or loss) we make on the exchange rate movements of currency pairs. We do not have to restrict ourselves to the historical specific amounts of standard, mini and micro. We can enter any amount we wish greater than 1,000 units.

1,000 units is the minimum position size we can open. So for example, we can sell 28,000 units of the GBPJPY currency pair at the rate of 156.016. Each pip movement is ? 280 (28,000 * 0.01). We then take our ? 280 per pip and change it to the base currency of our account which of course our broker does automatically. So with a Euro denominated account a fall of 50 pips to 155.516 would mean a profit of 106.00 (50* 2.12). What is Leverage & Margin? Trading with leverage allows traders to enter markets that would be otherwise restricted based on their account size. Leverage allows traders to open positions for more lots, more contracts, more shares etc. than they would otherwise be able to afford. Let’s consider our broker a bank that will front us $100,000 to buy or sell a currency pair. To gain access to these funds they ask us to put down a good faith deposit of say $500 which they will hold but not necessarily keep. This is what we call our margin. For each position and instrument we open our broker will specify a required margin indicated as a percentage. Margin can therefore be considered a form of collateral for the short-term loan we take from our broker along with the actual instrument itself.

For example, when trading FX pairs the margin may be 0.5% of the position size traded or 200:1 leverage. Other platforms and brokers may only require 0.25% margin or 400:1 leverage. The margin requirement is always measured in the base currency i. e. the currency on the left of the FX pair. Let’s look at an example. Say we are using a dollar platform and we wanted to buy a micro lot (1,000 units) of the EURGBP pair and our broker was offering us 200:1 leverage or 0.5% required margin. Our broker will therefore take just €5 as margin and we were able to buy 1,000 units of the EURGBP pair. If we were using a US Dollar platform that €5 is automatically converted to dollars by our broker at the current exchange rate for the EURUSD. Another example: Say we wanted to sell 50,000 units of the USD JPY and we are using a Euro platform and our broker was offering us 400:1 leverage or 0.25% required margin. Our broker will therefore take $125 from our balance as our margin requirement and we are able to sell 50,000 units of the USDJPY. This time we are using a Euro platform so that $125 is converted to euro at the current EURUSD exchange rate. Overnight PremiumsSwaps. When an FX position (or a CFD position) is held overnight (or ‘rolled over’) there is a charge known as a ‘swap’ or ‘overnight premium’.

We call it a charge; however it is possible to earn a positive sum each night too. When trading FX, it is based on the interest rates of the currencies we are buying and selling. So for example, if we were buying the AUDCHF we would earn a positive overnight sum as we would earn interest on the Australian Dollars we bought as the Australian interest rate is higher than the Swiss interest rate (in fact the Swiss interest rate is zero). So often buying currencies against the Swiss Franc will result in a positive swap. For the most part however an overnight premium will be a charge on our account and again this relates to the size of our position. The actual percentage is very small each night as it is the annual interest rate divided by 360 (days in year). Our broker automatically calculates overnight premiums and they usually take effect after 10pm GMT. Under the trading conditions most brokers will stipulate the swap rates for a buy or sell position on each pair. We multiply this rate by our trade size and divide by 360 like the formula above to know what premium we are charged or we earn. The principles behind lots trading and pips calculation. Lot definition Different Lot sizes explained USD and EUR practical illustrations The correlation between margin and leverage Understanding the intrigues in Margin Call calculation.

What is a Lot Size in Forex? In Forex trading, a standard Lot refers to a standard size of a specific financial instrument. It is one of the prerequisites to get familiar with for Forex starters. This is the standard size of one Lot which is 100,000 units. Units referred to the base currency being traded. When someone trades EURUSD, the base currency is the EUR and therefore, 1 Lot or 100,000 units worth 100,000 EURs. Now, let’s use smaller sizes. Traders use Mini Lots when they wish to trade smaller sizes. For example, a trader may wish to trade only 10,000 units.

So when a trader places a trade of 0.10 Lots or 10,000 base units on GBPUSD, this means that he trades 10,000 British Pounds. There are many beginners or small investors who wish to use the smallest possible Lots sizes. In contrary to the Mini Lots that refer to 10,000 units, traders are welcome to trade 1,000 units or 0.01. For example, when someone trades USDCHF with a Micro Lot the trader basically trades 1,000 USDs. Now that we understand what Lots are, let’s take one step further. We need to calculate the Pip Value so we can estimate our profits or losses from our trading. The simplest way to calculate the Pip Value is to first use the Standard Lots. You will then have to adjust your calculations so you can find the Pip Value on Mini Lots, Micro Lots or any other Lot size you wish to trade. Our calculations in this sector are when your Base currency is the USD. We will provide three different examples. USD quote currency of the currency pair. You’re trading 1 standard Lot (100,000 base units) that the quote currency is the USD such as EURUSD.

The Pip Value is calculated as below: 100,000*0.0001 (4th decimal)=$10. USD base currency of the currency pair. You’re trading 1 standard Lot (100,000 base units) and the base currency is the USD such as USDJPY. The Pip Value is calculated as below: The USDJPY is traded at 99.735 means that $1=99.73 JPY 100,000*0.01 (the 2nd decimal) 99.735?$10.03. We approximated because the exchange rate changes, so does the value of each pip. Finding the Pip Value in a currency pair that the USD is not traded. You’re trading 1 standard Lot (100,000 base units) on GBPJPY. The GBPJPY is traded at 153.320. Because the value changes in the quote currency times the exchange rate ratio as. The Pip Value => 100,000*0.01JPY*1GBP153.320JPY = 6.5 GBP. Because the base currency of the account is the USD then we need to take into account the GBPUSD rate which let’s assume that is currently at 1.53560. 6.5 GBP(1 GBP1.53560 USD)= $9.98. Now let’s make our examples when the Base Currency of our account is the EUR. EUR base currency of the currency pair. You’re trading 1 standard Lot (100,000 base units) on EURUSD. The Pip Value is calculated as below. The EURUSD is traded at 1.30610 means that 1 EUR=$1.30 USD so. 100,000*0.0001 (4th decimal)1.30610 ?7.66 EUR. Finding the Pip Value in a currency pair that the EUR is not traded. You’re trading 1 standard Lot (100,000 base units) on GBPJPY. From our example before, we know that the value is 6.5 GBP. Now, we need to take into account the EURGBP rate in order to calculate the Pip Value. Let’s assume that the rate is currently at 0.85000.

So: 6.5GBP(1GBP*0.85 EUR)= (6.5 GBP1 GBP)0.85 EUR?7.65 EUR. Leverage – How it works. You are probably wondering how can I trade with Lot sizes of 100,000 base units or even 1,000 base units. Well, the answer is very simple. This is available to you from the leverage you have in your account. So let’s assume that your account’s leverage is set at 100:1. This means that for every $1 used, you’re actually trading $100 in the Forex market. In order for you to trade a position of $100,000 then the required margin to open such a position will be $1,000. As for any losses or gains these will be deducted or added to the remaining balance in your account. If your account’s leverage is set at 200:1 this means that for every $1 you use you’re actually trading $200. So for a trade of $100,000 you will require a margin to be at $500. Margin Call – What you should know. Now looking at the examples above regarding the leverage you’re probably thinking that is the best to work with the highest possible leverage. However, you need to take into consideration your Margin requirements as well as the risks associated with higher leverages. Let’s just say that you have deposited first $5,000 to your trading account that the leverage is set at 100:1. Your nominated currency is the USD. The first time you will login to your MT4 trading account you will notice that the Balance and the Equity is $5,000 and this is due to the fact that you did not place any trades yet. Now, you have decided to open a position on the USDCHF of the 1 standard Lot which means that you will require use a margin of $1,000. The floating PL is at -9.55. The account will show the following. Forex Training Group. One of the most important elements in successful forex trading is money management. Structuring a trading plan without a prudent money management component, can seriously affect a trader’s profits and potentially put them out of business. An integral part of money management consists of responsibly determining how large of a position a trader should take in relation to the amount of funding in the account.

This process is known as position sizing, and most experienced traders will incorporate clear rules governing this activity in their trading plans. Two of the most prevalent reasons that traders lose money in the forex market are due to their lack of proper risk evaluation and the propensity for overleveraging – taking on more risk than the size of their trading account can safely bear. Given the notable exchange rate swings that often occur in the currency market, assigning and using suitable lot sizes in forex trading risk management plans is essential. The following sections of this article will deal with explaining what a forex lot is, which forex lot sizes are most common and how you can use a position calculator to determine what size position to take given your risk appetite. Understanding this subject thoroughly will provide the basis for developing a suitable and responsible position sizing strategy within your trading plan. What is a Lot, a Lot Size and a Lot Denomination Currency? In the forex market, futures markets and other financial markets, the term “lot” specifically refers to the smallest available position size or unit that can be traded in those markets. The specific amount of currency assigned to a lot is known as a lot size. There is no formally established lot or lot size in the Interbank forex market, which operates as an unregulated over the counter market. As a result, Interbank forex transactions, and those performed by clients with Interbank participants, can occur in virtually any amount with no other established minimum. For their part, forex futures markets like the Chicago International Monetary Market or IMM tend to have one basic lot size for all transactions performed in a particular currency pair, although some futures exchanges are seeing the benefits of allowing smaller lot sizes for greater position sizing flexibility. Due to their standardization of minimum contract sizes, futures contract trades will generally need to be performed in an amount that is some multiple of that most basic or minimum forex contract size or lot size capable of being traded. In contrast to how lots are used in the currency futures market, the spot forex market which has a larger number of smaller retail traders, seems especially flexible in terms of the lot sizes available for market operators to trade in. Most online forex brokers will offer several different lot size options for traders to use, although it seems important to note that these variations are often governed by minimum account size restrictions in practice.

Furthermore, the size of spot forex trading lots are usually denominated in the base currency that appears first in the quoting convention for a currency pair, which can be called the lot denomination currency. For example, the lot denomination currency would be Euros for the EURUSD currency pair or U. S. Dollars for the USDJPY currency pair. Typical Sized Lots in Forex Trading Available at Online Forex Brokers. In the online forex market, the trading lot size offered by brokers can vary considerably, so retail clients enjoy a greater degree of choice in their minimum trading amounts. Furthermore, saying that you are “trading a 1 lot in forex currency pairs” can mean a very different thing to different currency traders, so you will probably need to be more specific about exactly how much currency each lot you are trading consists of. Also keep in mind that not all lot sizes are made available to all trading account types by online brokers, so make sure that a broker you are considering using will provide you with the lot size you are most interested in trading given the amount of money you have available to deposit in your trading account. Among online brokers, the term “standard forex lot” typically represents the standardized amount of 100,000 units of the base currency versus the amount of counter currency set by the exchange rate. The base currency is the first currency quoted in the currency pair, which would be Pounds Sterling in the GBPUSD pair, for example. Then there are mini lots. A forex mini lot will usually consist of 10,000 units of the base currency. This lot size seems especially popular with many retail forex traders since it offers a useful combination of position size flexibility and affordability. At the lower scale there is the forex micro lot, which usually refers to the standardized amount of just 1,000 units of the base currency versus the amount of counter currency determined by the exchange rate. Some online forex brokers even offer a smaller lot size than the micro lot in forex trades, which is known as a nano lot, and which is used for buying or selling multiples of 100 units of base currency. Both of these smaller lot sizes will tend to appeal to: Experienced traders wishing to try out a broker to see what sort of execution service they are offering on live transactions Novice traders testing their abilities or system in a live trading environment Retail traders with very small trading accounts who cannot afford to trade in larger sizes.

Traders whose position sizing strategy requires greater flexibility in the specific amounts taken for each trade. Finally, if you are a retail trader and have a particular lot size that you prefer to deal in, then you will want to choose an online forex broker that supports that unit, and this consideration should feature prominently in your choice of which broker to partner with. Why Your Forex Lot Size Matters. In order for a trader to effectively manage risk and other related specifics, such as an appropriate degree of leverage for their trading account, determining the proper lot size to trade can be of utmost importance, almost as important as deciding which direction you should take a position in. The size of the lots you trade in, which can affect the size of the positions you take, will directly impact the effect of market moves on the profit or loss resulting from a trading position. The larger the minimum trading unit or lot size you use, the higher the impact each minimum sized trade will have on the overall account’s profitability when the currency pair makes a significant move. Basically, the key to effective risk management is to determine the optimum lot size for the amount of funds you have and are willing to put at risk in your trading account. The Impact of Market Volatility on Lot Size Choices. Measuring volatility in the currency pairs that we are most interested in trading allows you to gauge market conditions better and make more informed decisions. In general, the more exchange rates fluctuate, the higher the market volatility is. Not only does volatility change from time to time in a particular currency pair, but volatility can also be different at any given time for the various currency pairs. Currency traders need to be aware of market volatility by having a means to assess it. One popular measure is historical volatility, which is related to the standard deviation of past price movements. Another more forward looking measure is observing the implied volatility in the option market for the particular currency pair you are trading.

When it comes to volatility and lot size choices, traders need to be prepared to adjust their trading sizes downwards as volatility rises and upwards as volatility falls in order to take a more uniform degree of risk when they trade. Astute traders should also consider adjusting stop loss and profit taking orders appropriately to account for substantial shifts in market volatility. Visualizing the Effect of Lot Size. In his classic trading book, Trading in the Zone, author Mark Douglas presents an interesting analogy by which to visualize the impact of using larger or smaller lot sizes when trading. His example asks the reader to equate for a moment their trading lot size with the degree of support they might have underneath themselves while crossing over a valley, although perhaps visualizing a steep ravine might get the point across even better! Anyway, Douglas asks the reader to consider the impact of an unexpected event on their crossing of this valley. If a trader uses a small lot size relative to their trading account size, then that is like making the crossing over the valley on a broad and firm bridge. Even if you experienced a storm while on the bridge, you will still probably feel secure in your footing and unlikely to fall off the bridge. In this analogy, the storm is much like the sharp moves or other severe market turbulence that forex traders can experience from time to time. In contrast, you can consider the situation where a forex trader instead uses a large lot size in relation to the amount of money they have decided to put at risk in their trading account. This would be analogous to crossing that same valley on a tightrope wire, where storms — or even a brief gust of wind — can overwhelm you and potentially make you lose your footing and fall.

This would be like taking such a large position that even a relatively small, but unexpected, adverse market move could send your account’s balance plummeting past the point where you can no longer expect to regain your financial footing. In summarizing this analogy, it demonstrates that the reason position sizing is so important for a trader’s risk management purposes is that it makes them think carefully about how much risk they can realistically afford to take, and not just about how much risk they can actually take based on available leverage. Using Forex Lot Size Calculators. A useful trading tool to help determine the most suitable lot size to trade is the lot size calculator. This simple calculator tool is readily available online at many forex broker websites, and you can use most forex lot calculator programs completely free of charge. Lot size calculators have also recently become available as mobile apps, such as the Lot Size Calculator app from Flag One Pte Ltd that is available for Apple iOS mobile devices at the App Store. This particular app can be downloaded free of charge, only takes up around 4 MB of mobile device storage, and has the following desirable features: Simple scrolling and the ability to input or select among the major currencies and currency pairs A clean user interface with input sections and computed numbers clearly marked to make your lot size calculation process more straightforward. Live market prices for all of the significant currency pairs so that you do not have to waste time by entering them manually. Instant computation so that you do not have to waste any time that may cause you to miss a potentially profitable trade. Available on Apple mobile devices so that you can calculate lot sizes and trade on the go. An Example of a Position Sizing Calculator. Another useful and closely related type of calculator commonly employed for risk management purposes that you can find online is a position sizing calculator.

As a concrete example of one of these online calculators, please review the screenshot of the position sizing calculator available at Mataf. net that is shown below in Figure 1: Figure 1 – Screenshot of Mataf. net Position Sizing Calculator. Note that the position sizing calculator at Mataf. net has the following inputs and computed fields: Your equity – This is the amount you have in your trading account. A pull down menu where you enter the currency you have your equity deposited in. Risk – This is how much you are willing to put at risk expressed in the equity currency you chose. % – This is the percent of your equity that you are willing to risk on this particular trade. Note that you can enter either a Risk amount or a %, but not both since entering one will compute the other. BuySell – This is a pull down menu underneath the Trade heading where you can choose what direction you intend to take a position in. Currency Pair – This is another pull down menu under the Trade header that lets you select the currency pair you wish to trade in. Entry – Situated under the Position heading, this blank area accepts the spot rate at which you intend to enter into this position. Stop – This blank area appears next to the Entry field and accepts your chosen stop loss level or displays one computed from entering information into other blanks.

Pips – You can either enter how many pips you are comfortable risking or have that amount filled in by your entries elsewhere on the calculator form. Some of the above items will be computed as soon as you enter them, but to finish calculating your results, you will need to just press on the navy blue button beneath the calculator entry fields. The position sizing calculator will then display your total contract size, pips value and leverage for this particular transaction you are contemplating. In addition, the screenshot image above shows that the calculator also displays those parameters for three scenarios where you are using forex lot sizes of 10,000, 50,000 and 100,000 base currency units respectively. Take Your Trading to the Next Level, Accelerate Your Learning Curve with my Free Forex Training Program. Forex contract lot sizes. Understanding how to calculate pip value and profitloss requires a basic knowledge of currency pairs and crosses. Calculating direct Rate Pip Value Pip stands for "price interest point" and refers to the smallest incremental price move of a currency. Tick size is the smallest possible change in price. Pip value for direct rates are calculated according to the following formula: Formula: Pip = lot size x tick size Example for 100,000 GBPUSD contract: 1 pip = 100,000 (lot size) x .0001 (tick size) = $10.00 USD. Calculating Direct Rate PL (ProfitLoss) Calculating PL for direct rates is calculated as follows: Formula: Selling price - Purchase price = PL. Example for 200,000 GBPUSD contract initially bought at 1.7505 then sold (closed) at 1.7540: 1.7540 (selling price) - 1.7505 (purchase price) = .0035 positive pip difference = 35 pip profit. To further convert the above PL to USD, use the following calculation: Formula: Pip profit (loss) x lot size x tick size = USD profit (loss) 35 (pip profit) x 200,000 (lot size) x .0001 (tick size) = USD $700 profit. INDIRECT RATES Most currencies are traded indirectly against the U. S. Dollar (USD), and these pairs are referred to as indirect rates. An example is the USDCAD (Canadian Dollar).

The USD is the "base currency," the CAD is the "quote currency" and the rate quote is expressed as units per USD. An example of a indirect rate is as follows: USDCAD trading at 1.1500 means that 1 USD = 1.1500 CAD. Calculating Indirect Rate Pip Value Pip stands for "price interest point" and refers to the smallest incremental price move of a currency. Tick size is the smallest possible change in price. Pip value for indirect rates are calculated according to the following formula: Formula: pip = lot size x tick size current rate Example for 100,000 USDJPY contract currently trading at 120.50: 1 pip = 100,000 (lot size) x .01 (tick size) 120.50 (current rate) = USD $8.30. Calculating Indirect Rate PL (ProfitLoss) Calculating PL for indirect rates is calculated as follows: Formula Selling price - Purchase price = PL Example for 100,000 USDJPY contract initially bought at 120.50 then sold (closed) at 120.30: 120.30 (selling price) - 120.50 (purchase price) = -.20 negative pip difference = 20 pip loss To further convert the above PL to USD, use the above "Calculating Indirect Rate Pip Value" as follows: 1 pip = 100,000 (lot size) x .01 (tick size) 120.30 (current rate) = USD $8.31 Therefore: USD $8.31 (pip value) x 20 (pip loss) = USD $166.20 loss. CROSS RATES Currency pairs that do not involve the USD are referred to as cross rates. Even though the USD is not represented in the quote, the USD rate is usually used in the quote calculation. An example of a cross rate is the EURGBP. Again, the EUR is the base currency and the GBP is the quote currency. Calculating Cross Rate Pip Value Pip stands for "price interest point" and refers to the smallest incremental price move of a currency. Tick size is the smallest possible change in price. The base quote is the current base pair quote. Pip value for cross rates are calculated according to the following formula: Formula Pip = lot size x tick size x base quote current rate Example for 100,000 EURGBP contract currently trading at .6750, and EURUSD currently trading at 1.1840: 1 pip = 100,000 (lot size) x .0001 (tick size) x 1.1840 (EURUSD base quote) .6750 (current rate) = USD $17.54. Calculating Cross Rate PL (ProfitLoss) Calculating PL for cross rates is calculated as follows: Formula Selling price - Purchase price = PL Example for 100,000 EURGBP contract initially sold at .6760 then bought (closed) at .6750: .6760 (selling price) - .6750 (purchase price) = .0010 positive pip difference = 10 pip profit To further convert the above PL to USD, use the above "Calculating Cross Rate Pip Value" as follows: 1 pip = 100,000 (lot size) x .0001 (tick size) x 1.1840 (EURUSD base quote) .6750 (current rate) = USD $17.54 Therefore: USD $17.54 (pip value) x 10 (pip profit) = USD $170.54 profit. How to Determine Lot Size for Day Trading. Your Forecast Is Headed to Your Inbox. But don't just read our analysis - put it to the rest.

Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. Your demo is preloaded with ?10,000 virtual funds , which you can use to trade over 10,000 live global markets. We'll email you login details shortly. You are subscribed to Walker England. You can manage you subscriptions by following the link in the footer of each email you will receive. An error occurred submitting your form. Please try again later. Risk Management Talking Points: Trade size is an important factor of risk management Larger lots increase profits and losses per pip Use a simple ‘cost per pip’ formula to identify your position size. One of the important steps when day trading, is deciding how big your position should be. Position size is a function of leverage and while trading a large position may multiply a win, it can exponentially increase the value of a potential loss. This is why traders should always consider position size in trading. If too much leverage is incorporated in any given position, there could be unnecessarily devastating affects to one’s account balance.

To help, today we will review how to determine the correct lot size for your trading. Before you can select an appropriate lot size, you need to determine your risk in terms of percentages. Normally, it is suggested that traders use the 1% rule. This means in the event that a trade is closed out for a loss, no more that 1% of the total account balance should be at risk. For example, if your account balance totals $10,000, you should never risk losing more than $100 on any position. The math is fairly self-explanatory, and you will find the basic equation used below. Once you have a risk percentage in mind , we can move to the next step in determining an appropriate position size. As with any open position, a stop should be set to determine where a trader wishes to exit a trade in the event the market moves against them. There are virtually countless ways stops can be placed. Normally traders will use key lines of support and resistance for order placements. Traders can use price action, pivots, Fibonacci, or other methods for finding these values. The idea is with whatever method you decide, count the number of pips from your open price to your stop order.

Keep this value in mind as we move to the last step of the process. The last step in determining lot size, is to determine the pip cost for your trade. Pip cost is how much you will gain, or lose per pip. As your lot size increases, so does your pip cost. Conversely if you trade a smaller lot size, your profit or loss per pip will decrease as well. Which leaves the final question, how big should your trade size be? First, take your total trade risk (1% of your account balance), and then divide that calculated value out by the number of pips you are risking to your stop order. The total at this point is the amount per pip you should be risking. In the example above, if you are placing a trade on a $10,000 account you should only be risking about $100. On a 10 pip stop, this equates to a risk of $10 a pip. On pairs like the EURUSD, this means trading a 100k lot! Most traders are right on a majority of their trades, yet their trading account is unprofitable over time. We've researched and answered this phenomenon on page 5 of our traits of a successful trader guide. ---Written by Walker England, Trading Instructor. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.



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